Today’s Key Market Drivers: 7th August 2018
“Watch the China stock market today. It may trigger off a wider sell off.”
The Euro continued its slide against the US Dollar on Monday after weaker than expected German Manufacturing data. The Pound also fell against the greenback to multi week lows as investors continue to see the US Dollar benefiting from China’s recent stock market and currency slide. Even post the BOE’s rate increase last week the Pound has continued to fall as traders’ price in their expectation that the UK exits the EU without a trade deal being done. Monday saw the share market in China fall sharply and this comes on the back of consistent declines on the local currency the Yuan. China is a proxy for the Aussie Dollar and it too fell back lower through the European and US trading sessions and will likely remain weak today.
There was very little in the way of high impacting economic data on Monday however the AUD will be busy at 2.30pm AEST today when the RBA releases its latest monthly statement on monetary policy. The RBA will leave the official cash rate on hold at 1.5% and I doubt the statement is going to be anything other than a carbon copy of the past dozen or more statements. Traders do not expect the RBA to adjust the official cash rate in 2018 and with US interest rates continuing to rise and the interest rate differential continuing to widen between the US Fed and RBA my expectation is the AUD v USD will steadily continue to fall. Unless we see a change in the US economies fortunes (highly unlikely) or the US Fed tells the market it’s going to hold interest rates steady for a while I expect the AUD v USD to be below 0.70c before Xmas.
The AUD did get a small boost on Friday when China announced its own $60 Billion worth of US trade tariffs but the US economy is in a much better position to weather any trade war that may eventuate and this is why the US Dollar is being supported. CNBC reports this morning. “Since mid-April, the dollar index has gained 6 percent while an emerging-market local currency bond exchange traded fund has fallen more than 10 percent over the same period.”
The current theme in financial markets is to buy US Dollar assets. China’s stock market plunge on Monday has the potential to turn into something more substantial for the local ASX 200 and AUD if the sell off continues and this is something to keep an eye on today. The RBA’s statement at 2.30pm AEST could move the AUD up to half a cent within minutes of the rate statement being released. Any rally on the AUD will likely be short lived. The Euro will remain under pressure today with German Trade Balance and Industrial Production numbers to be released.
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About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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